Interest Rates Are Down; Is It Time to Refinance Your Mortgage?

Interest rates for mortgages are low — really low.

As of the first week of June, long-term mortgage rates were down for the sixth consecutive week. The 30-year fixed rate average was below 4%, its lowest point since September 2017. If you’re a homeowner, you may be wondering if now’s the time to refinance.

Here’s what to consider:

REASON TO REFINANCE

It’s important to know why you want to refinance.

Some people simply want to take advantage of lower rates so they pay less over the course of their loan or to pay it off faster. Others want to lower their monthly payment. Some desire a better product, such as getting out of an adjustable rate mortgage into a fixed loan. Others may have seen their financial situation improve since they bought their home and now qualify for better terms. And some may want to cash out some equity from their homes.

Before you agree to refinance, make sure it meets that goal.

REFINANCING RATES

Yes, rates are low but they were very low in the years following the recession too.

So some homeowners may have already refinanced once already. If you are considering another round, remember that unless you move into a shorter-term loan, you are essentially starting the clock anew on paying off your home, warns Sarah Mikhitarian, a senior economist at Zillow.

However, she notes that people who bought in the past year or two when rates started to climb may want to run the numbers on refinancing.

Another note on rates: It’s tough to know where things are headed so you may want to act quickly if it makes sense for you.

“These rates and this moment are fleeting and unpredictable,” said Rick Bechtel, head of US Residential Lending at TD Bank.

Bechtel said that lenders are busy with both an uptick in refinancing and completing loans for the spring home-buying season, so make sure your lock-in period allows enough time to complete the process, around 45 to 60 days.

COSTS TO REFINANCE

Refinancing comes with some expenses, typically between $2,000 and $3,000 in various closing costs. You can pay those out of pocket or have them rolled into the balance of the new loan. Some banks may waive the cost of the fees in exchange for a slightly higher rate on the loan itself. You may face added costs for certain state taxes that might not be factored into all mortgage calculators either, Bechtel noted.

It’s up to you how to pay for it but consider your break-even costs. This is basically how long it would take for the savings from the refinance to pay for the cost to refinance itself. For example, if you paid $2,000 to refinance but saved $200 a month, it would take you 10 months to break even.

If you aren’t going to be in the house longer than that, it doesn’t make sense.

“Ultimately it’s a very personal finance decision,” Mikhitarian said.